'A few jerks' prompt retailer to alter rules on electronics

Published 10:00 pm, Monday, February 26, 2007

The Issaquah-based retailer has begun limiting money-back returns on TVs, computers, cameras, camcorders, iPods, MP3 players and cell phones to 90 days. Previously, there was no time limit except for personal computers, which was six months.

The change went into effect Monday in Costco's 109 California stores and begins March 12 in all 27 Washington stores. The company has more than 500 U.S. stores.

The policy also will begin in other West Coast states on March 12 and then move through the country until all U.S. and Puerto Rico stores adopt the 90-day return policy by April 2, Chief Financial Officer Richard Galanti said.

The cash-and-carry retailer will provide a free two-year warranty for TVs and computers as part of the policy change. Electronics goods purchased before the new 90-day policy goes into effect can be returned at any time.

"If we are going to make a change, we want to make it the best policy out there," Galanti told the Seattle P-I.

The change was implemented because the company was losing "tens of millions of dollars" in returns, Galanti said. He declined to specify the losses.

Returns of consumer electronics -- flat-panel televisions, in particular -- put a squeeze on Costco's profit margins in its latest fiscal year. Costco has posted strong sales of the TVs -- including a 50 percent rise in November at stores open for at least a year -- but it has seen many come back to its stores as customers encountered difficulty installing them at home.

Galanti said some Costco members would buy big-screen TVs and then return them months later, when newer, and less expensive models went on sale. He said the practice had become so prevalent one member recently wrote the company saying she was disappointed because she had heard Costco was going to stop its "free TV upgrade policy."

"While the policy is far more restrictive than before, it is far more liberal than anybody else in retail," Weller said. "People had been returning TVs they had bought for $2,000 last year and turning around and buying the same TV for $1,200. This is patently abusive, but Costco didn't want to change the rules for everybody just because a few jerks were, essentially, stealing."

"One of the things that has been an issue from shareholders is controlling the cost of electronics returns," Galanti said. "We went from a policy that might have been abused."

The new two-year warranty is not in addition to any manufacturer's warranty, Galanti said. For example, if a computer company provides a warranty for six months, then Costco will cover the warranty for the next 18 months.

"Warranty does not mean we will replace it if it's run over by your car," Galanti said.